What is the cost of borrowing the maximum amount of credit

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Reference no: EM13264873

MDM Inc. is considering factoring its receivabbles. The firm has credit sales of $400,000 per month and has an average receivables balance of $800,000 with 60-day credit terms. The factor has offered to extend credit equal ot 90% of the receivables factored less interest on the loan at the rate of 1.5% per month. The 10% difference in the advance and the face value of all receivables factored consists of a 1% factoring fee plus a 9% reserve, which the factor maintains. In addition, if MDM Inc. decides to factor its receivables, it will sell them all so that it can reduce its credit department costs by $1,500 a month. A) What is the cost of borrowing the maximum amount of credit available to MDM Inc. through the factoring agreement?

Reference no: EM13264873

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